2021 Changes to the HUD Form of Opinion in HUD-Insured Multifamily Loans

On Friday, August 13, 2021, HUD issued a 60-Day Notice requesting public comment on certain proposed changes to its multifamily form closing documents, including the Opinion of Borrower’s Counsel (HUD-91725M), Exhibit A Certification of Borrower (HUD-91725M-CERT) and the Instructions to Opinion of Borrower’s Counsel (HUD-91725M-INST).  Comments were due on October 12, 2021.  Below is a summary of certain substantive changes to these forms.

I. Opinion of Borrower’s Counsel (HUD-91725M):

• Amendments to HUD’s Firm Commitment no longer need to be listed separately in the opening paragraph of the opinion letter.
• The due authorization opinion in opinion 4 is revised to cover all entities in the organizational structure that are required to authorize the transaction.  Previously, the opinion covered only controlling entities within the borrower’s organizational hierarchy.
• HUD removed the definition of “Supporting Documents” and expands the definition of “Primary Loan Documents” to include the Assurance of Completion, the Assurance of Completion of Off-Site Facilities, the Latent Defects Agreement, the On-Site Deposit Escrow, and the Contractor’s Prevailing Wage Certificate.  The net effect of this change is that borrower’s counsel must now opine on the enforceability of those documents.
• HUD revised the definition of “Public Entity Agreement” so that it is no longer limited to agreements with state and local entities and includes agreements with all governmental entities.
• Previously, opinions 10, 11, 12, and 13 opined that the HUD loan documents control over inconsistent provisions found in the “Primary Loan Documents” and the “Supporting Documents.”  Those opinion paragraph now no longer cover all of the provisions in documents that were formerly Supporting Documents and that are now not included as Primary Loan Documents, including provisions found in tax-exempt bond, low-income housing tax credit, public entity agreement, and private secondary financing-related documents.
• Opinion 11 is revised to add the opinion that the HUD Requirements would govern in the event of a conflict with the provisions of any low-income housing tax credit land use restriction agreement.  Oddly, the opinion-giver is also now required to state that in the event of an apparent conflict between the HUD Requirements and a low-income housing tax credit land use restriction covenant, the parties and HUD will work in good faith to determine which federally imposed requirement is controlling.
• Opinion 12 was revised to state that nothing in any Public Entity Agreement precludes enforcement of the Primary Loan Documents. Previously, this was an opinion that the Primary Loan Documents and Supporting Loan Documents governed in the event of an inconsistency with a Public Entity Agreement.

II. Exhibit A Certification of Borrower (HUD-91725M-CERT):

• The revised form now includes an acknowledgment by the borrower on the borrower’s signature page that the submission of any false, fictitious, or fraudulent statement may result in criminal, civil and/or administrative action.

III. Instructions to Opinion of Borrower’s Counsel (HUD-91725M-INST)

• A supplemental opinion required by Chapter 19 of the MAP Guide was added as an example of a situation in which changes to the form of Opinion Letter may be permitted by HUD field counsel.
• HUD added some clarification on the applicability and use of an Assurances of Completion and Contractor’s Prevailing Wage Certificates.
• HUD excluded agreements with HUD from the definition of “Public Entity Agreement” and made some clarifying changes to what is included as a Public Entity Agreement.
• HUD added information regarding the timing and review and recording of LIHTC land use restriction agreements and provided for the inclusion of any such agreements as Primary Loan Documents to be listed in Section AA of the opinion letter.
• Paragraph DD of Section I is revised to clarify that a separate zoning certificate is required only when a zoning endorsement to the title policy is unavailable.
• Paragraphs HH and II of Section I is revised to reflect the new requirement in Chapter 19 of the MAP Guide that the Survey and Surveyor’s Report must reflect that the field work/last inspection was done no earlier than 180 days prior to initial and initial/final closings and no earlier than 120 days prior to final closings.
• Paragraph JJ of Section I is revised to reflect the requirement for the assurance of utility services when additional (or changes to) utilities are needed to support the repairs required by the HUD Firm Commitment.  Further, HUD states that the ALTA 17.2-06 utility access endorsement is required if available in the jurisdiction.
• Paragraph KK of Section I is revised to reflect the new requirement in Chapter 19 of the MAP Guide that docket searches may be performed within 60 days of closing, an increase from the prior 30-day requirement.  Further, HUD clarified the instructions to reflect that litigation docket searches are required in the jurisdiction of the HUD-insured property and the borrower entity’s business location jurisdiction and that the docket searches must consist of a search of the local and federal courts for the jurisdiction for all civil litigation, as well as a search of bankruptcy court records and tax lien records.